Thursday 23 February 2012 04.00 EST
First published on Thursday 23 February 2012 04.00 EST

In a month when the bi-centenary of Charles Dickens's birth is being celebrated, even the least ardent fans of the Victorian writer will be familiar with his graphic scenes: poor children and families, depicted living hard lives in single rooms within cold, overcrowded and often insanitary shared houses. Scenes which, following nothing short of a social revolution in the last century, many would not expect to see again.

Given the focus government gave private renting in the housing strategy, it's not surprising that there have been recent articles in the press exposing poor property conditions in a minority of the sector. But of more concern should be the rising phenomenon of overcrowded and expensive shared accomodation, or "sheds with beds", housing single people and families with children who don't qualify for social housing and are priced out of the alternatives.

With changes to housing benefit levels and eligibility for private sector rent already shifting, the welfare reform bill pass also into legislation a bedroom tax for social housing tenants, leaving shared housing increasingly the norm.

Change at foot

Single people under 35 are already only entitled to help with their rent through housing benefit for a room in a shared house. The Department for Work and Pensions' own estimates suggest 60% of all underoccupiers in social housing (those with one or more spare bedrooms) will be single people or couples with no children – only eligible for full housing benefit on one bedroom properties, which are in scarce supply.

Data from 2011 reveals one bedroom homes account for just 21% of all housing association stock, with just 60,000 one bedroom re-lets per year. Recent research by the Homes and Communities Agency showed new one bed properties falling from 39% of all completions in 1991-92 to only 17% in 2008-09.

A large number of 670,000 underoccupiers in social housing will face stark choices next April. They must find an extra £14 or more a week for each bedroom they under occupy, take in a lodger (as suggested by Lord Freud), adopt a child or have their own child, or give up their financial security and find a hefty deposit for their own home, or move into move into the private rented sector – giving up their security and hoping rents don't rise higher than eligible housing benefit levels.

Limiting the private rented sector

Government efforts to reduce expenditure on housing benefit in the private sector (by reducing eligible rent levels to the lowest 30% of the local market, freezing 2012-13 levels at this years and introducing a maximum cap of £400) have already seen landlords reduce the number of properties available for those on benefits.

It won't be long before many landlords realise letting their properties out on a shared accommodation basis will give them better returns, even from those on benefits. Why not? After all, they have a growing and captive market of tenants willing to share because they have been priced out of self-contained properties in either the social or private rented markets.

Rejuvenating the PRS

The government is keen to increase the size of the private rented sector again in this century – as a means of leveraging institutional private finance into providing more homes. It has commissioned an independent review of the barriers to institutional investment in private homes to rent, and is set to introduce changes to stamp duty, land tax and the taxation of real estate investment trusts (REITs) that will make the returns for institutional investors more worthwhile.

Although the private rented sector grew from a low of only 8% in the 1990s to 17% now, more than 90% of landlords are individuals acting to manage their own investment with just 1% of the housing stock owned by institutions. This compares with around 10-15% in European countries such as Germany, Denmark, the Netherlands, Sweden and Austria, where private renting accounts for up much as 25% of all housing tenure and is based around long term, secure tenancy agreements which can last for up to a decade.

Swimming with the tide

The major structural and political changes taking place in the housing sector represent a significant opportunity for social housing sector to move up a gear, unlock its existing assets and help to shape the future or private renting.

Whatever its merits, the existing affordable rent programme is not going to deliver enough homes to meet the needs of tomorrow's poor, and – whatever its future –the days of significant grant funding and bank loan financed social housing belong to the past.

That the future lies in shared housing seems inevitable, but that doesn't have to mean a return to Dickensian conditions. The social housing sector could, and should, step in to ensure there are affordable alternatives. Whether that's through direct private sector provision or cross subsidy from market rent/sale isn't the issue. The issue is the social purpose and values of the sector – and aligning those with the economic and social realities moving forward.

There are already lots of excellent examples of private sector partnerships and cross subsidy systems being developed along the lines of successful European models. The options and finances are there. Let's not go rushing back to a future of shared hostels or bedsits – they were never sustainable, and never will be.